1977 (7) TMI 2 - SC - Income Tax

Whether, the amount spent by the assessee in purchasing goods for the purpose of resale is expenditure within the meaning of section 40A(3) - question of law - Therefore the Tribunal was directed to refer the case to High Court

Summary

Issues: Interpretation of section 40A(3) of the Income-tax Act, 1961 regarding deductions for cash payments exceeding Rs. 2,500 in purchasing scrap metal for resale.

In this case, the appellant, an assessee-firm engaged in the wholesale business of brass and copper scrap, claimed deductions for cash payments exceeding Rs. 2,500 made during the assessment year 1970-71 for purchasing metal scrap. The revenue authorities and the Appellate Tribunal rejected the claim citing section 40A(3) of the Income-tax Act, 1961, which restricts deductions for cash payments exceeding Rs. 2,500. The Tribunal declined to refer the matter to the High Court, prompting the appellant to approach the High Court of Allahabad. The High Court dismissed the application for reference, leading to the appeal before the Supreme Court. The appellant argued that the payments for purchasing scrap metal constitute "expenditure" within the meaning of section 40A(3). The Supreme Court noted conflicting views on this matter, with various Tribunal benches holding that such payments are not expenditure, while certain High Court judgments took a contrary stance. Given the general importance of the issue and the acknowledgment that the question was raised before the Tribunal, the Supreme Court set aside the High Court's judgment and directed the High Court to seek a statement of the case from the Tribunal to decide whether the amount spent on purchasing goods for resale falls within the ambit of section 40A(3) of the Income-tax Act, 1961. The High Court was instructed to hear the parties and dispose of the reference accordingly.